Insurance industry will soon witness risk based recapitalisation exercise to ensure that each insurance company only insures businesses it has the capacity to redeem its claims, LEADERSHIP learnt yesterday.
Risk-based capital is a method developed by the regulator to determine the minimum amount of capital required of an insurer to support its operations and write coverage.
The risk-based capitalisation exercise, which may commence in 2023, is to ensure that underwriters upgrade their capital base in alliance with its risk appetite.
While this model iwill not prescribe any uniform capital, low capitalised insurers will face business restriction when the exercise commences.
Similarly, it was learnt that, high capitalised underwriters would be the only ones writing businesses in highly risked sectors, such as, Oil and Gas, aviation and maritime, even as the low capitalised ones would be restricted low risk businesses.
LEADERSHIP also learnt that this initiative will enhance soundness and profitability of insurers through optimal capitalisation, even as it introduces proportionate capital that supports the nature of insurance business. The complexity of the businesses being conducted by insurers means the industry must undergo risk-based recapitalisation.
However, investigations show this method seems to be the best for the market as there will not be license withdrawal.
Corroborating this development yesterday at the 2022 National Insurance Commission(NAICOM) seminar for Insurance Correspondents in Lagos yesterday, the commissioner for insurance/CEO, NAICOM, Mr. Sunday Thomas, said the commission and FSD Africa have commenced the process of developing a risk-based capital model of the Nigerian Insurance Industry as part of the various regulatory and market development initiatives to uplift the insurance sector to a global standard.
Currently, he said, the industry is already operating a risk-based supervision which will later be backed by risk-based capital.
Thomas stressed that the commission is engaging stakeholders including state governments towards ensuring domestication of the laws to ensure compliance with compulsory insurances and improve the business of insurance in their respective states.
He raised concern about some people who hold positions that are unknown to the commission in the various insurance companies, causing problems for and de-marketing the industry.
“Anybody that is not known to the commission and is participating in a critical role in any of the insurance companies will be ban from participating in the insurance sector henceforth. We will make sure that the person does not participate in insurance business in this country anymore,” he stated.
Speaking on the theme of the conference: ‘the Future of the Nigerian Insurance Sector in a Shifting Landscape,’ Thomas said, the commission is promoting the development of products and business models that meet the needs of the financially excluded group, while ensuring automation of the commission’s processes with a focus on Actuarial capacity development Programme and risk-based supervision regime.
He said the theme at this period of rejuvenation, “calls for the Nigerian insurance sector to develop innovative products and distribution channels, embark upon massive infrastructural development, improvement in social safety nets scheme, rejig business continuity plans and general deployment of technology to meet the expectation of today’s consumers and create new experiences that add value.”
The NAICOM boss said, the commission is encouraged “to believe in a new dawn in all facets of our regulatory policies, leveraging technological innovations, and a positive paradigm shift focused and poised to meet the anticipated surge in the demand side of the economy.”
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